Paulson Said to See AIG Unit Sales as Alternative to Breakup

John Paulson Said to Endorse AIG Sale
  • Hedge fund manager estimates life assets valued at $43 billion
  • Icahn has been pressuring insurer to split into 3 companies

John Paulson, the billionaire whose proposal to split American International Group Inc. into three companies was rebuffed by Chief Executive Officer Peter Hancock, would also support an alternative plan for the insurer to sell units, according to people familiar with his hedge-fund firm’s thinking.

Individual sales of subsidiaries could create more value than the spinoff off the entire life-insurance business, said the people, who asked not to be identified discussing internal deliberations at the hedge-fund firm. The goal of the plan would be to focus AIG on property-and-casualty insurance.

Activist investor Carl Icahn cited Paulson in an October letter urging Hancock to split the insurer into separate companies focusing on life, P&C and mortgage coverage. Asset sales might be more palatable to Hancock, who has said the three-way break up would be impractical.

“The market for insurance mergers and acquisitions is red-hot,” Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in a note to clients Monday. “Many investors are increasingly turning to a simpler approach as AIG’s answer: pursuing an enthusiastic course to choose the simpler path of selling its businesses outright to de-conglomerate the firm.”

‘Tremendous Benefit’

Hancock has sought to simplify the company since becoming CEO last year, and has sold some units in locations including Taiwan and Central America. While he has said there is a “tremendous benefit” to keeping life and P&C at the same company, the CEO has told analysts he’s open to further asset sales. Jennifer Hendricks Sullivan, a spokeswoman for New York-based AIG, declined to comment. Icahn didn’t immediately respond to a message.

Paulson’s firm believes the asset-sale plan would value AIG more than its $75 billion market capitalization as of Monday’s trading close, the people said. AIG jumped 1 percent to $61.26 at 10:48 a.m. in New York, the biggest increase in the 21-company Standard and Poor’s 500 Insurance Index.

Life, Mortgages

AIG’s life business could be sold in pieces for $43 billion, compared with a $33 billion valuation if it was trading publicly, they said. The mortgage guarantor, United Guaranty, could be sold for about $6 billion or have a market value of $4.5 billion if it were spun off, the people said.

The standalone P&C business, which would remain as the core operation, could be valued at about $44 billion, the people said. Paulson’s firm considers P&C to be the most important business to retain because of its global scale, the people said.

Also, U.S. life companies including StanCorp Financial Group Inc., Symetra Financial Corp. and Fidelity & Guaranty Life have all found buyers in recent months as Asian insurers seek to diversify by acquiring businesses in the world’s largest economy. The valuations on those deals highlight the premiums that buyers are willing to offer, Paulson’s firm believes.

‘Something Drastic’

In 2012, Paulson urged Hartford Financial Services Group Inc.’s then-CEO, Liam McGee, to “do something drastic” and separate the property-casualty operations from the life business. McGee resisted, citing possible difficulties with regulators and bond-rating firms, some of the same reservations Hancock has now. 

McGee instead divested assets, reaching deals that year to sell a broker-dealer to AIG and a life insurer to Prudential Financial Inc. In 2013, he agreed to sell a U.K. variable-annuity business to Warren Buffett’s Berkshire Hathaway Inc.

By the end of 2013, Hartford climbed to $36.23, compared with $19.12 on Feb. 7, 2012, the day before Paulson confronted McGee. That 89 percent gain beat the 37 percent increase of the Standard & Poor’s 500 Index in that span. Paulson didn’t enjoy the full benefit because he cut some of his stake in the insurer by the end of the third quarter in 2012.

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